Did you get a 20% reduction in your expense ratio?
Posted on June 6, 2025
In February, Vanguard lowered expense ratios for more 168 mutual funds. The total cut in fees is $350 million that owners of Vanguard funds get to keep this year. I had not looked at the effect on our portfolio. This post shows that our total expense ratio was cut by 20% and that Patti and I get to keep $76 more per year relative to $1 million invested. That lower cost isn’t improving the fundamental “safety factor” in our plan. More likely, it’s a bit more that we or our heirs will have in the future.
== From the start of our plan ==
When I started our plan in December 2014, our expense ratio – after switching all my actively managed mutual funds to index funds in our retirement accounts – was less than 0.07%. That’s less than $700 per $1 million invested. You can see my notation on my Plan Worksheet in Appendix B of Next Egg Care. The 0.07% compared to the low investing cost of 0.18% – $1,800 per $1 million invested – that’s still the default assumption in FIRECalc.
• Being lower than the low 0.18% assumed by FIRECalc did not change the fundamental “safety” of our plan. When you run FIRECalc and focus on the point of “failure” for the most harmful sequence of returns, you find that the lower expense ratio increases the time to depletion – “failure” – for a given spending rate by months, not years.
• But for an expected or average sequence of return – and we’ve all ridden along an average to slightly-better-than-average return sequence this past decade – the lower expense ratio relative to FIRECalc’s default assumption translates to about $1,100 more to us each year (again on the basis of an initial $1 million invested). For our mix of stocks vs. bonds, Patti and I have earned an average 6.6% real return per year over the last decade. That added $1,100 per year accumulates to $14,900 in $2014 or more than $20,000 in today’s dollars relative to FIRECalc’s default expense ratio. Nothing to sneeze at.
It’s been better than that: the big WAR on expense ratio was in 2018. Vanguard, Fidelity, Blackrock slashed expense ratios on index funds. (Fidelity introduced several of their ZERO expense ratio funds, and that quickly ended the war.) They cut the expense ratio on all four funds we own. Our total 0.68% expense ratio dropped to 0.39%. That was a 43% reduction. Patti and I got to keep an added $290 per year. That means we have more than the $20,000 I cite above. Thank you, Fidelity, Vanguard and Blackrock!
== Now: another 20% lower ==
This last cut by Vanguard only affects VXUS for us. The expense ratio on BNDX, our other Vanguard fund, did not change. The expense ratio for VXUS dropped from 0.08% to 0.05% – a 37% cut. But our expense for VXUS was more than half our total. The 37% cut translates to a total 20% cut. This is $76 per year on the basis of $1 million invested. WHOOPIE!
We now spend $310 per $1 million invested; we own nearly 36,000 stocks and bond with those four funds; we spend less than one penny per year to hold each stock and bond. AMAZING.
Conclusion: Those of us who invest in index funds have benefited in this last decade from the WAR on expense ratio fought largely by Vanguard, Fidelity and Black Rock in 2018. Patti and I own two Vanguard funds (VXUS and BNDX), one Fidelity fund (FSKAX), and one Blackrock fund (IUSB). If your portfolio is similar to ours, your expense ratio was cut by more than 40% in 2018.
In February, Vanguard announced a cut in expense ratio for 168 funds. This included VXUS, but not IUSB. It was a 37% cut for VXUS. Since the cost of VXUS was more than half our total fund expenses, that translated to another 20% cut in the total. Our total expense ratio and investing cost now is 0.31% or $310 per $1 million invested.
Over the last decade, we all have experienced a sequence of returns that has been average to slightly-better-than-average in real return. Lower than low investing costs have paid off in more money for us. In 2014, FIRECalc’s default assumption of 0.18% expense ratio was low – well below the average cost of all mutual funds. Over the last decade, Patti and I have averaged less than a third of the 0.18%. If I use the 0.18% as the base for comparison, the difference means we have $20,000 more in today’s dollars per each $1 million invested in late 2014.